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- Robert E. Lucas, Jr.

- Robert E. Lucas, Jr. The Importance of Growth & Productivity. “The consequences for human welfare involved in questions like these are simply staggering: Once one starts to think about them, it is hard to think about anything else.”. The Power of Productivity. Helpman article, Figure 3.5.

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- Robert E. Lucas, Jr.

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  1. - Robert E. Lucas, Jr. The Importance of Growth & Productivity “The consequences for human welfare involved in questions like these are simply staggering: Once one starts to think about them, it is hard to think about anything else.”

  2. The Power of Productivity Helpman article, Figure 3.5

  3. Major Avenues of Impact of Internet on Productivity • Enhancing globalization • Increasing business productivity • Increasing consumption productivity (class favorite) • Shortening adjustment time for GPTs.

  4. How Flat is the World? • Globalization 1.0: 1492: Size large to size medium. • Globalization 2.0: 1880s: Size medium to size small. • Globalization 3.0: 2000: Size small to size tiny.

  5. Friedman’s 10 Flatteners • Fall of the Berlin Wall • Netscape IPO • Work flow software • Open-sourcing • Outsourcing • Off shoring • Supply chaining • In-sourcing • In-forming • Some of your examples: • Skype 2.0 • Craigslist • Babelfish • Download.com

  6. Growth and Productivity • The Solow Model of Growth Gross domestic product Capital Labor Total factor productivity (Cobb-Douglas production function)

  7. Sources of Growth: Accumulation • Capital accumulation • Labor growth Great Lakes, 1970s New Zealand, 2005 Pittsburgh 1890s

  8. Total Factor Productivity Relative to Somalia, 1960-1985 The Eventual Driver: Productivity Helpman article, Figure 3.3

  9. Something Big Recently Changed 1966-1975 1976-1985 1986-1995 1996-2004 United States 1.2 0.9 1.0 2.0 Euro area 1.7 1.4 1.2 0.6 Japan 0.4 0.6 0.7 0.3 Average annual percentage changes in TFP per hour worked Source: Skoczylas and Tissot, Oct. 2005

  10. The U.S. Productivity Boom (it wasn’t all hype) Somewhat different breakdown with more detail and shorter horizon, but still same pattern.

  11. New Growth Theory • The Romer Model of Growth TFP Gross domestic product Capital Labor Ideas Private investment in R&D spills over to society. Ideas are an externality, leading to possibility of much higher sustained growth. The Romer model makes technological change endogenous.

  12. Productivity Surge & the Net • Class examples • Blast • In-flight WiFi • CRM Online • GasBuddy • LexisNexis • YouSendIt • Konfabulator • CafePress Networked computers Personalcomputers

  13. Ecommerce Not (Yet) a Big Driver in the Statistics • Back of the envelope Brynjolfsson & Hitt: Prices roughly 10 percent lower. Annual Ecommerce 2000: Approximately $150 Billion $15 billion << 0.1 percentage point of growth. BUT, by 2003: B2B ecommerce = $843 billion B2C ecommerce = 75 billion If savings still 10%, then savings almost $100 billion. (probably too high)

  14. Consumer productivity changes • Better shopping, payment, service consumption • Your examples PriceGrabber, Expedia, Priceline, Progressive, Carfax, Campusi,… Teemaster, OpenTable, Fandango, CitySearch,… BankofAmerica, PayPal, E-Trade,…

  15. Time to Sow, Time to Reap Output Relative to year 0 Investment phase Returns phase 1 Year 0 Years Since GPT Discovery (CNet, Finance Yahoo, Stanford Library, IMDB, Orbitz, Dictionary, …) (Checkfree, GasBuddy, Wikipedia, Safeway, …)

  16. Slump and Boom Phase 1: Slump Phase 2: Boom (Sufficient innovation & training to use effectively) CRM online? MapQuest? Where are we with:

  17. Summary • The Three GPTs have all affected productivity, but are in different phases • Digital/computing in returns phase • Networking emerging from investment phase • Individualization early in investment phase • The Internet is enhancing globalization, increasing B2B productivity, emerging in consumption productivity, accelerating GPTs.

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